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Friday, February 6, 2009

The Recession We Need II: Peter Schiff Agrees

In my occasional commentary on the coming economic stimulus, I've operated on the George Mickelson theory of "If it's gonna rain, have your bucket ready"—i.e., the assumption that a big bill is coming no matter what, so we'd better at least fight to optimize it... or, as the Republicans on the Highway 34 for the Future committee are planning, to get their fair share.

But what if the stimulus not only won't save us, but shouldn't save us? Might the best policy option be for the government to stand aside and let the recession give us the whoopin' we need?

Hey, this isn't just my crazy talk. Listen to Peter Schiff, president of Euro Pacific Capital (hat tip to an eager reader!), in this interview with Yahoo Finance Tech-Ticker today:

Enjoy your weekend while you ponder that suggestion for tough economic love.


  1. This is a bit off topic but I've been having very interesting conversations with my friends in industry and their takes on the "crisis". From a managerial standpoint, it can be extremely difficult to fire someone during prosperous times if they are a poor employee. This crisis has been the best excuse ever to fire the bottom 20% without repercussions. Generally, the bottom 20% doesn't contribute even during good times.

    Many of my friends work at aerospace companies that really aren't troubled by this crisis because of military contracts. Even so, managers are taking a free pass at dumping the bottom 20% right now to free up space for new hires.

    Good companies that are making money now are going to be even more competitive with an even sharper sword once the crisis shakes out.

  2. Oh boy. Your Wall Street Journal reader should consult, Schiff was Wrong, http://globaleconomicanalysis.blogspot.com/2009/01/peter-schiff-was-wrong.html .

    Schiff's clients lost 40 to 70% in 2008.
    Schiff predicted hyperinflation but instead the world went into deflation.
    Schiff predicted decoupling but instead the world's in depression.
    Schiff advocates holding foreign stocks and commodities, which isn't proving so profitable.

    Depressions are far deeper and last far longer than folks think they will at the onset. Expect double digit unemployment into, perhaps through 2010 and don't expect housing to rebound until 2012 to 2015 as it overshoots to the down side.

  3. Actually, Tony, I think you're still on topic. Maybe that excess labor is another economic indulgence that we need to shed for a less phony economy. (Of course, that bottom 20% still need to eat....)

    So I'm confused, Anon. You say Schiff was wrong, but you seem to support the analysis that the economy is going to keep going down, regardless of what Washington does. Do you think the stimulus will make the recession worse?

  4. Well, I'm not happy about my tax dollars and my kids going to build a new road to the interstate from Madison.

    I am so sick of the politicians in Pierre just lining up and licking their lips in anticipation of all the dollars soon to flow into this state (at least according to Stephanie). This so-called stimulus package is being rushed thru, and I have learned to trust no salesman that says you have to buy now or it will be too late. Obama and Pelosi et all are nothing but snake oil salesman that are using this hyped crisis to move us to socialislm and enact all their polities designed to make people dependent on gov't and make gov't dig even deeper into everyone's lives. This is sickening and we will live to regret it, as will our children and grandchildren and any freedom loving citizen of the US.

  5. Not so fast on that highway, says Governor Rounds (see tonight's MDL).

    But Anon, come now. Bush turned us socialist last year when he started nationalizing the banks. And if stimulus is going to happen, wasted or not, I'd rather see that money thrown at construction workers and kids health insurance than the rich bank execs who created this mess (by the way, Bush's Treasury overpaid those banks by $78 billion).

  6. I didn't want Bush's stimulus bill either. All this social engineering and lack of oversight and increased welfare state-itis is just going to make a bad situation worse.

    Want to hear a piece of conspiracy theory? The war in Iraq was winding down, the Dems needed an issue to win the election, and bingo here is the economy with some problems and they decided to hype that issue as their path to the White House. And wow, did it ever work! But I think the problem then developed a life of its own and became worse and out of control, aided and abetted by the candidates and the slobbering media, and now we have this mess. Which will be made hugely worse by this porky bill. This might be conspiracy theory, but I don't think it's completely wrong.

  7. caheid@730: Please read Shedlock's link provided as he explains that while Schiff "called" the recession in 2006, several of his pronosis since are flawed.

    No, the mis-named stimulus won't make the depression worse. It will modify the worst affects of the depression. It will allow us to catch up on some long neglected infrastructure. (It would be better to call it "relief" for calling it stimulus implies a bar that likely won't be met.)

    On the other hand several ideas won't help: bailing out insolvent banks prolongs the actual date they will go insolvent (insolvent banks need to be nationalized, nursed back to solvency and returned back to the private sector); rebates for buying a house is senseless when folks have no job or money for housing, the market has over 1 million and climbing excess houses; some mortgages should be renegotiated to keep QUALIFIED folks in their home (this won't work for all) - (but what's the point of banks foreclosing then putting homeless in the house to preclude vandalism).

  8. One thing is guaranteed. Dramatic inflation will begin very soon, followed by spiking interest rates. We saw it in the late 70's and early 1980's with CD rates at 15% and loans at 18%, but this time the inflation rate for merchandise will move much stronger in excess of 30% or more. Best thing to do is reduce debt, put whatever you can away and ride it out.

  9. Where is the revenue source for the government going to come from when the working tax payers (those that don't cheat like several cabinent nominees) decide enough is enough, we are not going to pay taxes any more?

  10. I'm with you, Firebird.


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